Parametric Insurance Have Found the Way Back?

An insurer may prefer to issue parametric over traditional insurance products because of significant claims-processing savings. With a predetermined trigger and indemnity cost, there is no need for claims adjusting. Further, there is no need to establish a case reserve for reported claims. With parametric insurance, the insurer will need to accrue for unpaid claims liabilities for events that have occurred but for which complete information about the parametric triggers is not yet known. However, once those triggers are verified, the value of claims is known immediately.

Along these lines, parametric insurance is superior to traditional coverage because insureds are paid more quickly. Insureds also have wider access to coverage for well-defined risks. Nevertheless, a significant drawback to parametric insurance is evident when insureds may incur more loss than the benefit provided. Moreover, some insureds may receive benefits without sustaining any real losses.

Experts foresee parametric insurance taking a larger role in insuring catastrophic events where there is no need for insurers to dispatch large teams of claims adjusters to assess damages or verify coverage. Considerable time and expense are associated with the thousands of claims resulting from catastrophic events.

There has been discussion on implementing Parametric Insurance on Indonesia Natural Disaster Insurance scheme back in 2014 amongst the Ministry of Finance represents by National Fiscal Policy Body, World Bank and some others stakeholders and it seems the discussion have found the way back in annual IMF-World Bank Annual Meeting in Bali this year following earthquake loss in Lombok earthquake and tsunami in Sulawesi.

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